The VAT was first implemented in France in 1954 by the French tax authority. It is a significant source of France’s revenue as well as the other countries that have implemented the tax. By charging tax to the businesses and manufacturers, it helps hold them accountable to collecting the tax at each stage of the process rather than counting on those businesses or consumers to pay a sales tax upon the sale of a product.
How a VAT works is where the idea gets confusing. In simple terms the goods are taxed only on the value added at each stage in the supply chain of a product. This tax is paid by the seller or manufacturer to the federal government by calculating what the added value is at a given stage. The tax is ultimately added to the purchase price of the product at each stage, and is carried on the consumer. So each time the product is passed along to another manufacturer or distributor in the supply chain there is a tax to be paid. Businesses can deduct the taxes already paid on the products when figuring the value added, but the consumer must pay all combined taxes when the item is purchased. The taxes are then paid by the businesses involved in the manufacturing and they sale of the products.
To simplify this confusing and complex tax we have put together a value added tax calculator which is easy to use. All you have to do is select the rate you wish to use. Then you enter the value of the item and select whether you want the final amount to include the VAT or not. Then click “calculate” and allow our calculator to do the work for you.